Daybreak - Gaurav Munjal wants to save Unacademy by doing what he once ‘hated’

Episode Date: May 13, 2024

When Gaurav Munjal started Unacademy, the edtech unicorn, he hated the offline coaching business. Edtech companies have tried to stay away from offline because of a number of reasons like low profit margins and huge capital. But with the edtech downturn, Gaurav Munjal, finally admitted to the press that he’d been wrong and had overestimated the online business. This came at a time when Unacademy's online business was free falling. So the edtech  shifted focus to its offline coaching network which now makes up 50% of its business. From celeb endorsements to massive discounts on its fee, the edtech is doing everything it can to counter its rivals like Allen and Aakash Institute.Unacademy is changing its very DNA but experts are raising questions about the long-term sustainability of the business. Tune in.Daybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

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When Gorev Manjal started an academy, the ed tech unicorn, he hated the offline business. He, of course, is not the only one. There are a bunch of reasons why ad tech companies have tried to stay away from offline. One is because the offline business is heavily dependent on operations. Then, there is the issue of profit. margins which are quite low. And also, they require a massive capital. So online was the place to go.

And it worked, right? We all saw it. The rise of Bayju's and Anacademy itself. The two biggest ed tech companies in India. But then came the ed tech downturn. And last year, Goro Manjal, who's often known for his brash, unapologetic sort of an image, admitted to the press that he had been wrong and that he had overestimated the online business. Now, this unsurprisingly came at a time when Unacademy's online business was on a freefall. So Munjal had to do what he'd said he'd never do. Anacademy began to focus on offline coaching. It began spending big bucks on celebrity endorsements.

You must have seen the ads with Sachin Tendulkar. They also had Mahindra Singh Dhoni at some point. In fact, just last month, Anacademy spent about $9,000,000 to hold a mega event for JEE and NEET aspirants in Bangalore called Anacademy Aram. And the air tech brought popular Bollywood celebrities like Karan Johar, Karthik Aryan and filmmaker Al-Bhmittal as the speakers. Listen to this exchange. Ladies and gentlemen, boys and girls, give it up. We have Karthik Aryan in the house. Look at them, this entry, super star hero's entry. Thank you, thank you, Karan.

I think there's very excitement here and there's many topers here here here. So, they're with them here and it's a lot of a lot of... I'm not sure what Bollywood A-listers can talk about to students studying to be engineers, but the video has over one million views on YouTube, and I guess that is the point.

The other thing on Academy also did was offer discounts on offline and online courses, not normal discounts. normal discounts. I mean heavy discounts, like 40 to 50% off for offline and up to 90% off on online. And now, half of the ad tech's business is offline. So in today's episode, we take a look at how Anacademy is changing its very DNA. Welcome to Daybreak, a business podcast from The Ken. I'm your host, Nick Dha Sharma, and I Don't Chase the News Cycle. Instead, every day of the week, my colleague Rahal Philipos and I will come to you with one business story that is worth

understanding and worth your time. Yes, you heard that right. We are taking daybreak daily from this week on. You'll hear more about it in the coming few days. Today is Monday the 13th of May. Now at this RM event last month, Anacademy announced a flat 40% discount on all offline courses for an entire week. Not just that. A senior academic counsellor at Unacademy's offline centre told my colleague the Ken reporter Alifia Khan that there were also spot and centre discounts of nearly 10% and more discounts for single parents and those with low incomes.

And also more discounts for students who got good marks in Unsat which is Unacadmy's own all-India entrance exam. But just offering discounts is not going to cut it for an academy. After all, it's offline-trans. coaching centers are just about a year old, and it has to deal with competitors like Alan, Akash, and Sri Chaitanya who are known to produce toppers year after year. The counselor who spoke to us gave us an idea. They said, and I'm quoting, today on Academy's biggest pitch to parents is, unlike Akash

or Alan, that have 2,000 to 3,000 students, our center had a maximum of 500 admissions last year. We are doing it to maintain quality and teachers get respect to. Remember this line because I'm going to come back to it later. Now, another way through which Anacadamies trying to woo parents is by making its offline teachers sign a three-year bond. The idea being that they don't leave in the middle of the child's course. But like a former executive who headed one of the verticals of Anacadamie's online business said to Olifia, the offline business is a long-term game. unlike the online business that can be scaled quickly on the steroid of cash burn. Stay tuned for more.

To understand the challenges of the offline business that Anacademy is faced with and also how it's changing its DNA, let us go back to take a look at what its online model was all about. It was all about getting star educators onto the platform. And by star educators, I mean teachers who had a huge following on social media and YouTube. Unacademy brought them on by offering them insane salaries. In 2020, when things were still good for Unacademy, it started giving a team referral code to teachers who were working on particular channels. This worked so well that a year later, the management came up with individual referral codes for the educators.

But this system of referral codes led to competition within teams in Unacademy. And to add to that, the EdTech company began ranking its teachers, on the basis of watchtime and subscribers. More views meant more sales for the air tech form. It almost seemed like an academy was operating with blinders on. And this is when the downfall began. Things did not go according to plan. And instead, it created confusion for students and led to a drop in retention rates.

Revenue began to dry up and the pressure on teachers to get sales increased. Good teachers failed at selling. and there was a growing discontent over the huge salary disparities. And cut to now, when Unacademy is going the offline route. And its biggest pitch is they are taking lesser students so they maintain a certain quality and teachers get respect to. Make of that what you will. Now, going back to how this switch to offline is a road full of many bumps for Unacademy.

I'll tell you more about it in the next segment. To take on the likes of Akash Institute, or Allen for that matter, which has been around for over three decades, is no joke. Like I told you earlier, some of the usual reasons why ad tech companies tried to stay away from offline were because of the offline businesses' heavy dependence on operations, the profit margins being low and also massive capital. An ed tech founder from Gurgao who spoke to the ken explained how maintaining the same quality everywhere is very difficult, with their own example. They said they had about 100 offline centres when they decided to enter online coaching about 7 to 8 years ago. And they shut all of them down and never reopened. And the biggest challenge is also pricing. In the online business, An Academy is considered a premium product. But since it

entered the offline market in 2022, it slashed its price points to the level of affordable brands like physics voila. And still, it's a lot of it. is nowhere as affordable as Allen, for example. Which is why another ed tech founder told us what Unacademy is doing is not sustainable in the long run. They said, and I'm quoting, you need a certain number of students in the classroom and per teacher to be able to meet the break-even point. So, reduce prices, take fewer students and pay more salaries to teachers? How is this a sustainable model? The second biggest challenge is collecting fee.

A senior executive from Akash Institute explained it saying it is not that difficult to book a student. They pay their first installment and you get them on board. But the real story unravels later. Can you collect the rest of the fee and retain them all? And the other issue is the experience it takes to handle customers in person. Because offline is a direct customer-facing business. Like a former unacademy business leader said, If you go wrong online, parents may complain to the company or consumer forums.

Here, they will catch you by your caller. And this shift and focus on offline is not all Anacademy is doing to change its DNA. Remember the Star Educators? Unacademy did a U-turn and did its best to kill their social media stardom. And insiders at the company told us that this idea came from Munjal himself, the same man who once rewarded these educators for creating these networks. So what does Anacademy have to say in response to all this? For the story, my colleague Alifia Khan from the Ken sent a detailed questionnaire

to the co-founders Gorav Munjal and Roman Saini. The company spokesperson responded by saying, and I'm quoting, the conclusions being drawn are purely based on conjecture and uninformed understanding of a few isolated incidents and incomplete information does not accurately reflect the culture of finances of Unacademy. We are steadfast in our journey towards growth. In fact, Unacademy is on track to grow more than 20% this calendar year with a burn rate that is 50% lower than the last.

Unquote. But like a former business unit head at Unacademy said, does Munjal have the patience to wait? Because even if you throw money, which is money at offline business, It needs time because parents need results, no discounts. And scaling quickly without understanding the market can be suicidal. Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings.

A full subscription unlocks daily long-form feature stories, newsletters and podcast extras. To subscribe, head to the Ken.com and click on. on the red subscribe button on top of the Ken website. Today's episode was hosted by Snigda Sharma and edited by Rajiv Siyah.